I’ve been reading a lot about house prices in the UK recently and there’s a term that keeps cropping up: Generation rent.
What Is Generation Rent?
It primarily refers to millennials who will likely remain as renters for much of their adult life without the hope of ever becoming a homeowner.
Recent figures show that around ⅓ of millennials may never be able to afford their own home and instead will have to rent for their entire lives.
My Own Situation
As a millennial myself, I know all too well the joys of renting. Especially in London where the rent can take away a substantial amount of your monthly pay. I paid £800 a month, bills included, for just a room in a four-bedroom property in London.
After subtracting the rent, food and transport from my monthly wage, there really wasn’t that much left over.
I’m currently staying at my girlfriend’s parents’ house which allows us both to save much more, but even still, home ownership is still very much out of our reach.
We’re not even sure whether home ownership is what we truly want anyway.
Why Is Home Ownership So Expensive?
There seem to be a few factors that have led to this situation. For one, house prices have just skyrocketed. They have gone up and up and up and have been rising much faster than people’s wages.
This puts it out of reach for most people on an average income.
There also simply isn’t enough affordable housing for people. This increases demand for the properties that are out there and as a result prices sore.
What’s Happening Because Of This?
As a result of these high prices, people may:
- End up renting for longer periods – some even indefinitely
- Opt for house sharing arrangements to keep rent costs down
- Struggle to save up enough money for a house deposit and other living costs
- Look towards alternative ways of living (e.g. on a boat)
What’s Being Done To Try To Solve The Problem?
Some efforts have been made to make it easier for people to own homes but it’s questionable whether they have helped matters or made things worse.
For example, the UK Government introduced the Help-to-buy scheme in 2013 (2016 in London) – a loan that helps you secure a new-build property with just a 5% deposit. Unfortunately, it has been argued that this has only increased demand further and driven up house prices even more.
Is Renting So Bad?
Renting is often seen as an inferior option to owning your own home, after all, you’re money is essentially going to a landlord rather than building equity in your own property. But there may be some benefits.
Many millennials may argue that renting is superior due to its flexibility. With the gig economy expanding, it’s usually easier to relocate and take advantage of other opportunities. It’s also possible to rent houses in areas where it would be way too expensive to own a home.
If you are on a decent income and are good at saving, it might even be better to rent and use the extra money to invest in other assets.
Ramin from Pensioncraft has a great video about this on his YouTube channel.
He found that, depending on the interest rates, it may be better financially to rent and invest into the stock market than it is to buy a home. Of course, this was assuming the market would return a favourable percentage and as we know, there are no certainties when it comes to the market. But still, I found it an interesting point.
What Does This Mean For Generation Rent?
In light of this housing crisis, I think we all really need to start thinking much more deeply about our futures.
Without the financial security of owning a home as an asset, we all risk an extremely tough retirement.
It’s time to really ask ourselves tough questions; is home ownership something we really want?
If it isn’t, then it looks like we could be better off investing and building up other assets to see us through our retirement.
Do you think owning your own home is still desirable, even if it is so expensive?